What are the different types of lever finance?

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lever finance concerns debt financing, usually a company that exceeds the norm. Businesses have two ways of financing their operations: debt and own capital. The owner is carried out for small businesses to finance his own capital by means of his personal resources to allow the company to function. A larger company will issue shares.

Business of any size may require additional operations or extensions. Banks lend to businesses, usually in the form of a rotating credit line. This means that the company will draw money from the bank when it needs and then pay them because the sale creates profits. For example, retail chains see most of their profits near Christmas and are likely to use a credit line in the autumn to finance the inventory of the upcoming season. The company's long -term debt is financed by the issue of bonds. One well -comprehensible approach is called an intermediate debt. Society issues ties with war -treated boasts. The order provides a creditor of "own capital",Possibility to buy a specified amount of shares at a specified price for a specified period of time. The stock kicker financing appeal because the creditor accepts a lower interest rate, which makes the company easier, but will receive the opportunity to the above market by performing the possibility of buying shares. The possibility usually applies only if the price of the stock exceeds the price specified in the option.

lever finance may have another form called secured debt obligations (CDO). Any form of collateral, including machines, equipment, real estate and gold can be used. The reason for using CDO rather than net debt is to reduce the interest rate that the company pays by reducing the risk of the creditor. At the beginning of the 21st century, many large banks used a property to create a Cdo called Mortgage supported by Securities (MBSS).

MBSS were sold to hedge funds, other banks and corporate investors in amounts that are estimated at more than $ 10 trillionin the US (USD). MBS were divided into groups or tranches based on perceived risks and expected returns. Individual tranches were evaluated by credit rating agencies and then sold to the buyer who wanted the characteristics offered by the MBSS in this trance. As the subsequent events have shown, leverage finances can be quite risky and even banks in the world can be destroyed by its use.